Reference no: EM133232420

1. This question concerns the classic Chay and Greenstone (2005) study from the lecture/textbook. The experimental design uses "Nonattainment" with Clean Air Act standards as of 1975 as an instrument for the change in pollution in a neighborhood from 1970 to 1980, and then estimates the causal effect of these changes in pollution on house prices. Chay and Greenstone.
   1. Explain why estimating the effect of Clean Air Act standards on house prices is informative for the magnitude of externalities from pollution.
   2. State and explain the identifying assumptions for this Instrumental Variables design to be valid. Give one example of how the identifying assumptions might fail. (Note: the obvious concerns should be mentioned in the paper, so you might take a look at the original paper if you want ideas or you want to see how the authors defend their research design).
   3. Below you will find the two main results tables reproduced from Chay and Greenstone (2005). Explain how we should interpret the three circled regression coefficients. Can you find the relationship between them? (Note that in Table 5, the authors scale Mean TSP's by 100, if they had not done this the coefficient would have been -0.0036 in instead of -0.362.